Federal Savings & Loan Ins Corporation v Molinaro

• Jurisdiction: Cayman Islands
• Judge: (Douglas, Ag. J.)
• Judgment Date: 16 November 1987
• Court: Grand Court (Cayman Islands)
• Date: 16 November 1987

Grand Court

(Douglas, Ag. J.)

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION

and

MOLINARO and SIX OTHERS

A. Jones for the plaintiff;

J. Furniss for the first defendant;

C. Quin for the second defendant;

M. Alberga for the third, fourth and seventh defendants;

J. Jenkins for the fifth defendant;

Miss C. Bridges for the sixth defendant;

A. S. Smellie, Senior Crown Counsel, for the Attorney General.

Cases cited:

(1) Bankers Trust Co. v. Shapira, [1980] 1 W.L.R. 1274; [1980] 3 All E.R. 353, applied.

(2) Ferrostaal A.G. v. Jones, 1984–85 CILR 143, considered.

(3) Norway (State of) Application, In re, [1987] Q.B. 433; [1989] 1 All E.R. 661; on appeal, [1989] 1 All E.R. 745, distinguished.

(4) Speyside Estate & Trust Co. Ltd. v. Wraymond Freeman (Blenders) Ltd., [1950] Ch. 96; [1949] 2 All E.R. 796.

Civil Procedure-discovery-discovery before statement of claim filed-if prima facie case of fraud against defendant, discovery of banker”s books and correspondence permitted to allow tracing of assets for purpose of completing statement of claim properly-discovery may include disclosure of safe-deposit boxes but not inspection of contents

The plaintiff corporation applied for an order of discovery against the first defendant before filing its statement of claim in proceedings against him.

The plaintiff had been appointed the receiver of an insolvent savings and loan association in the United States and wished to institute proceedings there against a former officer and sole shareholder of the association (the first defendant), in respect of the fraudulent diversion of the association”s assets to himself and others. It had information that these assets might be in or have passed through Cayman bank accounts and that valuables remained in safe-deposit boxes in these banks.

Before filing a statement of claim, the plaintiff applied for an order of discovery against the first defendant, the second defendant and the Cayman banks in which funds had possibly been deposited in accounts opened in the first defendant”s own name and other assumed names as well as the names of the second defendant and nominee companies set up for this purpose.

The plaintiff submitted that discovery was necessary to enable it to trace the funds and to identify other defendants given that (a) it had sufficient evidence to point to the undeniable connection between the first defendant”s Cayman bank transactions and the fraud; and (b) without the information sought it could not formulate a precise statement of claim.

The first defendant opposed the application, submitting that it was a fishing expedition in that it had been made before the filing of the statement of claim and was an attempt on the part of the plaintiff to elicit information which would lead to the obtaining of evidence rather than a bona fide attempt to establish allegations of fact.

Held, granting the application in part:

(1) Even though the application had been made before the filing of the statement of claim, because a prima facie case of fraud had been made out, the court would order the banks to disclose the specified books, documents and correspondence to enable the plaintiff to locate the misappropriated funds and to identify any other defendants for the

purpose of properly completing the statement of claim (page 9, lines 18–24; page 11, lines 21–28).

(2) The court would also order that the first defendant make and serve on the plaintiff an affidavit specifying whether he had rented any safedeposit boxes either in his own name, other assumed names or the names of any other persons but would not order that such boxes be opened for the plaintiff to examine and photograph the contents, as such an order would go beyond the permissible limits of tracing the funds and would amount to a fishing expedition (page 11, line 29 – page 12, line 6).

DOUGLAS, Ag. J.: By summons dated August 11th, 1987 the
25	plaintiff corporation is applying for an order that the defendant
banks make and serve on the plaintiff lists of all the documents in
their possession, custody or control relating to either the first or
second defendants or any of the scheduled persons, and relating
to any assets beneficially owned by the first or second defendants
30	or any of the scheduled persons. The summons also contains a list
of the documents which the plaintiff wishes to have disclosed.
The plaintiff, Federal Savings & Loan Insurance Corporation
(‘FSLIC’), an instrument of the US Government and based in
the State of California, is presently engaged in a lawsuit in that
35	state against John Molinaro, the first-named defendant in these
local proceedings. The last five named defendants are all banks
based in the Cayman Islands.
This application is an offshoot of the California action. The

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